Financial Institutions Inc (FISI) 2020 Q4 法說會逐字稿

Good morning, and welcome to the Financial Institutions, Inc.

Fourth Quarter and Full Year 2020 Earnings Call.

(Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Shelly Doran, Director of Investor and External relations.

Please go ahead.

Thank you for joining us for today's call.

Providing prepared comments will be President and CEO, Marty Birmingham; and CFO, Justin Bigham; Director of Financial Planning and Analysis, Mike Grover, will join us for Q&A.

Today's prepared comments and Q&A will include forward-looking statements.

Actual results may differ materially from forward-looking statements due to a variety of risks, uncertainties and other factors.

We refer you to yesterday's earnings release and historical SEC filings available on our Investor Relations website for a safe harbor description and a detailed discussion of the risk factors relating to forward-looking statements.

We will also discuss certain non-GAAP financial measures intended to supplement and not substitute for comparable GAAP measures.

Reconciliations of these measures to GAAP financial measures were provided in the earnings release, which was filed as an exhibit to a Form 8-K.

Please note that this call includes information that is accurate only as of today's date, January 29, 2021.

I'll now turn the call over to Marty.

Thank you, Shelly.

Good morning, everyone, and welcome to our fourth quarter 2020 earnings call.

Despite the many ongoing challenges presented by the COVID-19 pandemic, thanks to the commitment and significant effort of the collective Five Star team, 2020 proved to be a year of strong performance across an array of key outcomes.

We generated record-high net income of $13.8 million in the quarter or $0.84 per diluted share as compared to $12.3 million or $0.74 per share in the third quarter of 2020 and $13.1 million or $0.79 per share in the fourth quarter of 2019.

Pretax pre-provision income in the fourth quarter was also the highest in company history at $21 million, a $1.7 million increase from the third quarter of 2020 and a $4.9 million increase from the fourth quarter of 2019.

Revenue growth and expense discipline, reflecting the impact of our enterprise standardization program, resulted in a fourth quarter efficiency ratio of 55.8%.

We took 2 actions during the fourth quarter to provide important flexibility in managing our balance sheet in the months ahead.

The first was in October when we sold $35 million of 10-year fixed-to-floating rate subordinated notes, with an annual interest rate of 4.375%.

After 5 years, it becomes floating rate debt redeemable at our discretion.

We were comfortable with our capital levels before the offering but deemed it prudent to take advantage of low interest rates to add capital for use in organic and strategic growth opportunities and to further strengthen the bank's capital ratios.

The second action was the establishment of a stock repurchase program for approximately 5% of our outstanding common shares.

Shares may be purchased in open market transactions and pursuant to any technical requirements of a 10b5-1 trading plan.

We did not buy back shares during the fourth quarter due to blackout restrictions.

However, our plan went into effect on January 11, and we have repurchased a total of about 127,000 shares since then.

In December, we announced the planned acquisition of a Rochester based insurance brokerage firm, Landmark Group.

Landmark will be acquired in our SDN Insurance Agency subsidiary and their principles will remain with SDN to lead our Rochester insurance operations.

The Landmark acquisition will expand our insurance business in Rochester in the Finger Lakes region, an important growth market for us.

Kelly and Chris Shea, Landmark's Chairman and President, are highly respected.

Their philosophies are consistent with ours, and they have a very strong commitment to their clients.

We see upside in leveraging our banking and wealth management offerings to their clients and their insurance offerings to local Five Star customers.

We are looking forward to completing this transaction, a continuation of our long-term strategy to diversify revenue.

This is a bolt-on transaction relatively immaterial to the company's financials, as it will negatively impact the TCE ratio by less than 2 basis points.

EPS dilution is projected at about $0.01 per share in the first year, with EPS accretion generated shortly thereafter as we benefit from economies of scale.

Pre-closing activities are proceeding on schedule, and we expect the transaction to close in the first quarter.

It's now my pleasure to turn the call over to Justin for additional details on results and 2021 guidance.

Justin?

Thanks, Marty.

Good morning, everyone.

Marty said it very well, 2020 really was a year of strong performance across an array of key outcomes, most importantly, the fundamentals, which is well measured by pretax pre-provision, which increased over 8% year-over-year.

Additionally, we also generated over 2% of operating leverage from 2019 to 2020, excluding branch restructuring charges.

With that said, let me start by providing comments on several key areas with comparisons to the third quarter of 2020.

Net interest income for the quarter was $36.2 million, an increase of $682,000 from the linked quarter.

The increase was driven by a number of items that increased our interest-earning assets, which I'll cover now.

In December, we started to see PPP loan payoffs through the forgiveness process.

Approximately $17 million of these loans were forgiven, and we accelerated approximately $240,000 in net interest income from origination fees in connection with the payoffs.

Net interest margin was 9 basis points lower than the linked quarter, which is lower than we projected, primarily due to a higher-than-expected increase in our liquidity position.

Specifically, new deposit growth was higher and seasonal decline in municipal deposits were slower than we forecasted, which on a combined basis, significantly increased our overall liquidity position.

Some of this excess was deployed into collateral eligible mortgage-backed securities in an effort to reduce the NIM pressure associated with interest on excess reserves at the FRB.

While we couldn't fully deploy the excess cash due to the delayed but expected seasonal public outflows in December, the incremental yield improvement of our investment purchases was about 100 basis points better than the interest earned on cash held at the FRB.

About 5 basis points of the NIM decline is attributable to the investment portfolio and 4 basis points is attributable to the Federal Reserve cash position.

As we discussed last quarter, the low interest rate environment and overall challenging economic environment have made it difficult to deploy cash in investment alternatives with attractive duration adjusted yields.

Cost of funds for the quarter was 34 basis points, a decrease of 4 basis points.

The decline was driven by lower deposit costs, driven by lower market interest rates and favorable funding mix, partially offset by the subordinated debt issuance previously mentioned.

Provision for credit losses was $5.5 million for the quarter compared to $4.0 million in the linked quarter.

Charge-offs were in line with historic quarterly charge-off levels at $2.4 million, up from last quarter's $488,000.

Our allowance for credit losses on loans increased to $52.4 million at year-end, up from $49.4 million at September 30.

We continued to build our allowance for credit losses in the quarter despite improvement in the macroeconomic outlook.

As we have discussed in prior quarters, our primary loss driver for CECL is national unemployment.

During the first 3 quarters of 2020, that generally resulted in the building of reserves ahead of any pandemic-related losses.

In the fourth quarter, the unemployment forecast improved, resulting in a modeled reduction in our quantitative reserve.

Throughout the pandemic, we have analyzed the unique characteristics of each customer in our commercial portfolio within at risk industries.

As the pandemic progressed, like others, we have been able to identify the specific customers and industries that are most at risk.

These customers represent a very small pool of loans, about 20 representing a loan balance of approximately $127 million.

The pool includes $82 million of loans on extended deferral, which represents a significant portion of the commercial loans on active deferral at year-end.

The remaining $45 million of loans were not on deferral, but they have [magnification] attributes that need to be monitored.

During the fourth quarter, we moved this entire $127 million population of loans to criticized assets.

In doing so, we also set aside a specific provision of $4.7 million for certain assets in the pool, consistent with our CECL methodology.

At this time, we are cautiously optimistic that these credits will normalize post-pandemic, but we believe the specific provision created provides an adequate reserve to cover losses that could develop from this pool of loans.

The allowance for credit losses on loans to total loans was 1.46% at quarter end.

Up from 1.38% at September 30.

If you exclude PPP loans, the ratio increases to 1.57%, an expansion of 8 basis points from the linked quarter.

Credit metrics remained strong with a total nonperforming loan to total loan ratio of 26 basis points at December 31.

And an allowance for credit losses, loans to nonperforming loans of 551%.

Noninterest income was $881,000 lower than the third quarter of 2020.

Key drivers were: Income from derivative instruments was down $1 million, as a result of lower transaction volume and associated derivative asset values; insurance income was $479,000 lower due to the timing of commercial renewals typically received in the third quarter each year; and gain on investment securities was down $404,000 or these decreases were partially offset by fourth quarter increases in income from investments limited partnerships, service charges on deposits, gain on sale of loans and investment advisory fees.

I'd like to add a bit more commentary regarding insurance income.

Year-over-year income was down $167,000 or 3.7%.

However, we also reduced related expenses.

EBITDA margin generated by our SDN insurance subsidiary increased to 19% in 2020, up 73% from the 2019 margin of 11%.

Noninterest expense was $26.5 million, a decrease of $1.9 million from the linked quarter.

The largest contributors to the decrease were; nonrecurring severance and real estate-related restructuring charges related to branch closures and staffing reductions were $148,000 in the fourth quarter, as compared to $1.6 million in the third quarter; and advertising and promotion expense was $401,000 lower due to expenses incurred in the third quarter in connection with the launch of Five Star Digital Banking.

Income tax expense was $1.7 million in the quarter, representing an effective tax rate of 10.9%.

Expense and the tax rate were positively impacted by tax credit investments placed in service during the quarter, resulting in a reduction in the income tax expense of $915,000.

Moving to the balance sheet.

Growth in total loans was $27 million or 0.7% from the end of the third quarter 2020.

Commercial mortgages grew 4.3%, residential loans increased 0.5%, and consumer indirect was flat.

Commercial business was down 2.9% compared to the linked quarter as a result of PPP loan forgiveness of approximately $17 million, combined with lower C&I loan demand.

The salable residential portfolio decreased by $2.8 million due to the seasonal decline in residential pipeline volume.

The pipeline continues to be well positioned with approximately 40% representative of held-for-sale production.

Total deposits at quarter end decreased by $87 million from the third quarter as a result of seasonality in our public deposit portfolio, partially offset by growth in the nonpublic and reciprocal deposit portfolios.

Realizing that average deposit balances were up notably over the linked quarter by $232 million, it is important to mention that the seasonal outflows occurred during the latter half of the quarter, later than expected based on historical experience.

Our access liquidity position continues to pressure net interest margin.

As previously mentioned, we did deploy approximately $100 million into the securities portfolio.

However, yields are low, reflective of current market conditions.

I'd now like to spend the next few minutes providing our outlook for 2021 in key areas.

We expect mid-single-digit growth in our total loan portfolio when excluding the impact of PPP, with all loan categories contributing to the increase.

We do expect muted growth in the first half of 2021 in C&I and small business loans as those customers take advantage of the second round of PPP.

Our PPP assumptions include approximately $125 million to $175 million of originations in the second round currently underway.

We also expect approximately 90% of the first wave of these loans to be forgiven in 2021 with a heavier weighting of forgiveness in the first half of the year.

We plan for high single-digit to low double-digit growth in nonpublic deposits as deposit balances remain elevated in the low interest rate environment.

This guidance includes the previously announced 2 new Five Star Bank branches that we expect to open in Buffalo midyear 2021.

We are projecting reciprocal and public deposits to be flat.

Overall, we expect full year NIM of 3.1% to 3.15%, excluding the impacts of PPP.

We expect to see further compression from excess liquidity, carrying higher balances in investment securities and lower yields on earning assets as loans and securities reprice, which will be partially offset by deposit funding costs, lower deposit funding costs.

There will be noise in our NIM relative to PPP forgiveness and new originations throughout the year, so we are guiding NIM, excluding the impact of PPP activity.

As a reminder, our NIM fluctuates from quarter-to-quarter due to seasonality of public deposits and its impact on both our earning asset and funding mix.

In quarters where our average public deposit balances are higher due to seasonal inflows, the second and fourth quarters, our earning asset yields are lower given the short-term duration of the funds and limited opportunities to invest the fund.

As a caveat, our NIM guidance is highly dependent on the overall rate environment.

We are also projecting low single-digit growth in noninterest income, excluding gains on investment securities.

2020 was a unique year from a fee income perspective.

We did waive service charges for a portion of the year as part of our COVID-19 relief package, but that was more than offset by a very strong year for derivative instruments and mortgage banking activity.

We are not expecting to waive fees and expect fees from both interest rate swaps and mortgage banking to moderate in 2021.

We are targeting an increase in the low to mid-single-digit range in noninterest expense for 2021.

Noninterest expense is expected to range from $27 million to $29 million per quarter.

We anticipate that our efficiency ratio will be within a range of 57% to 58% for the full year.

We expect that the effective tax rate for 2021 will be within a range of 18% to 19%, which includes the impact of the amortization of tax credit investments placed in service in recent years.

We will continue to evaluate tax credit opportunities, and our effective tax rate would be positively impacted by taking advantage of further investment opportunities.

We expect net charge-offs in our recent annual historical range of approximately 35 to 40 basis points.

Overall, our focus is improved profitability and positive operating leverage.

We believe that achieving results in line with the guidance provided will drive these outcomes.

I'd now like to turn the call back to Marty for any closing remarks.

Thank you, Justin.

Pace of activity in 2021 is certainly not slowing.

We successfully launched the current round of the Paycheck Protection Program on Tuesday, January 19.

Our online application and submission process is working well, and there's been strong interest from new and existing customers in applying for their loans with Five Star Bank.

To date, we have processed more than 800 applications for approximately $100 million in PPP loans and the SBA has already approved $39 million.

We are using an experienced and well-respected fintech partner for the online application process or loan portal.

We learned a great deal from last year's program and the rollout from the SBA in 2021 has been much smoother.

Accordingly, the experience for our associates and customers is greatly improved in the current round.

Our organization continues to adapt and evolve to meet the needs of our customers, necessary in our fast-changing world.

Our new portal should enable us to process a significant amount of loans in 2021, but it all depends on demand and the availability of funds.

We have also been working with our community partners to provide information and assistance to low-income and minority communities regarding the Paycheck Protection Program.

Conversations with these community partners highlighted the need for necessary communication and support to minority and under-banked businesses by a locally based financial institution.

At the onset of the first round of the loans in 2020, many minority businesses either missed out or felt as though they missed out on needed funding.

A very high percentage of minority businesses are sole proprietorships.

Have no employees and typically don't benefit from stable banking relationships.

In mid-January, we worked with Rochester-based community partners to provide a webinar titled, ensuring access for all.

Discussion focused on the program and recent changes, and we let minority businesses know that Five Star Bank is here to help no matter how large or small a loan.

We also communicated our plan to provide hands on support at 2 of our Urban Rochester branches.

We will be good shepherds of the PPP program and help as many in our communities as we can.

We have a wonderful opportunity to help many new and existing customers that will, in turn, strengthen relationships and lead to new business in an even brighter future for Five Star.

We also continue to work with our customers on the forgiveness of 2020 PPP loans.

As of December 31, 2020, 110 loans totaling $17.4 million had been forgiven out of a total of approximately 1,700 loans.

As of last week, we have received forgiveness applications from only about 45% of borrowers.

We believe this is due to customer expectations or potential changes in the forgiveness process, which did occur with the new CARES Act 2.0.

Changes made, the application process for loans of $150,000 or less, much simpler, and additional expenses are now allowable for forgiveness.

We are still awaiting the new simplified form to be released by the FDA.

On the more than 950 customers that have not sent in their forgiveness application, 770 were loans of $150,000 or less.

The SBA has now paid off $44 million of our PPP loans with another $49 million submitted and approved by the bank for forgiveness.

The SBA has 90 days to pay off the loans submitted, although to date, they've been paying them much quicker.

I am proud of our many accomplishments in 2020.

Despite the pandemic and its many challenges, we delivered uninterrupted banking services while keeping our customers and associates safe.

We provided customer relief and helped approximately 1,700 customers obtain PPP loans.

Our new online and mobile banking platform launched in late spring to provide improved accessibility to customers during a time when they needed the ability to be able to bank from anywhere anytime.

Major improvements in processes and operations were implemented, and we streamlined our branch network, all as a result of the enterprise standardization program.

In the fourth quarter, we completed an unsecured debt offering and a stock repurchase program, important actions to support our balance sheet and provide opportunities.

Progress was made toward opening of our 2 new branches in Buffalo, and we announced a nice bolt-on insurance acquisition.

And our strong community support continued through grants, donations and investments.

Because of the dedication, adaptability and commitment of my associates, we were able to accomplish all these things and deliver impressive financial outcomes.

While year-over-year, net income and earnings per share were negatively impacted by the COVID-driven increase in provision, we've generated 7% growth in total revenue comprised of net interest income and noninterest income.

Noninterest expense, excluding the impact of nonrecurring charges incurred in connection with the branch transformation, increased only 4.6% in 2020 and includes significant investments in technology, such as our digital banking platform, income tax expense benefited from our ongoing investment in historic and low-income tax housing projects.

We recognize that many uncertainties remain, yet I look forward to 2021 with hope for progress by our leaders in providing essential support of the vaccination rollout in pandemic relief.

And a reopening of our economy.

Operator, this concludes our prepared comments, and we are ready to open the call for questions.

(Operator Instructions) The first question today comes from Alex Twerdahl with Piper Sandler.

First off, hoping you could give us a little bit more color on the loans that were downgraded this quarter.

Was it just loans that were on modification?

Or did you go through more of an extensive process looking at the whole loan book to arrive at that bucket of loans that were put into the criticized classified categories?

So Alex, I'm sure you can appreciate.

That's been a fundamental focus of our risk and our commercial team for the most part of the last 10 to 11 months.

And the overarching approach that we've taken has been to make sure that whatever actions we're taking are logical, they're reasonable, they're defensible and ultimately document it because so much of what we are trying to manage through here is not explicitly guided for from a regulatory accounting, et cetera, perspective.

So we -- in terms of the CARES Act and the specific provisions that it provides for, in our case, TDR relief from an accounting and regulatory perspective, but as well, the spirit and attention of the CARES Act to provide support to help good customers that didn't have anything to do with obviously a pandemic impacting them as negatively as it has.

So we've worked as an organization to develop an addendum to our credit policies that we've called our COVID addendum to basically manage through and guide us through this process.

And as part of that, Alex, one of the things, by definition, if we are dealing with and helping customers effectively bridge to the end of the pandemic through relief and modifications, we've elected to call those loans, special mention, by definition.

So we are watching them carefully.

We also want to make sure it's as transparent as possible for all of our constituencies, our investors, our regulators, our auditors, and as well, the teams inside the bank that are working there, these loans.

So to your question, Alex, we have individually analyzed each of these credits and ultimately, through the policy that we developed.

But the core conclusion was focused on their sustainability to get beyond the pandemic and to return to normal operations in a post-COVID world.

So that's the fundamental approach that we've taken that we are dealing with, our COVID addendum incorporated, as I said, our best logical, reasonable approach, defensible, whatever regulatory guidance was out there.

But ultimately, it's a policy that we developed to support this question on this issue.

And as Justin talked about, our CECL loss drivers, we're -- in terms of our model, we're signaling stronger employment numbers, and we -- as a result, worked in terms of our qualitative factors and the underlying risk that's out there in -- continues to be out in the economy and making sure that those were appropriately adjusted.

And then in the fourth quarter, we identified those lists as part of this COVID bucket of loans that we believe had the highest loss for risk and segregated them and took appropriate action relative to provision expense.

So Justin, I'll stop there, and you can help Alex with more specifics.

Yes.

So Alex, just to help you kind of reconcile.

I think your -- one of your questions was, is it only deferrals?

And the answer is no.

It was a broader look at the portfolio.

So there are some loans in that pool of $127 million, about $44 million that represent loans that were not on deferral.

And the attributes associated with those loans could be -- there's a variety of different circumstances.

But one good example is sort of a construction or stabilization loan project and it's been paused, right?

That loan project has been paused.

They are paying accordingly, but because of the paused project, and the paused project is primarily driven by a circumstance where they have just one example is they have an event space, and there's no events right now.

So some projects, we have a handful of loans.

There's very few in that pool that we're just going to keep a close eye on and have set aside those and class -- move those to criticized assets to make sure that we can keep an eye on the way that Marty has described.

And then about $83 million of the total deferral population has also been moved.

So that's the combination.

I think that adds up to the $127 million.

And then from a deferral perspective, as you probably saw in our deck or we have about $99 million on deferral at year-end.

It's actually lower now.

We've actually -- because we had a couple -- we had a handful of loans at year-end that were scheduled to come back to return to pay normal payment activity in January, February, March, et cetera, near term.

A few of them actually already have returned to their normal payment activity and actually made their payments in January.

So that population was not moved because we -- to this criticized pool, even though they're on deferral because the expectation was that they would return to normal payment activity.

And the reason we knew kind of how to think about all this is we are really close to our customers, Alex.

I mean we're -- we've been monitoring this pool for a really, really long time, not the $127 million, but our total COVID exposure pool for a long time and trying to really keep our arms around it.

And we believe we fenced it in at this point.

And we're pretty comfortable and confident that what we've set aside is adequate based on what we know today, feel it's adequate for COVID exposure.

Thank you for all the additional color.

Do you have, by any chance, things like LTVs or weighted LTVs on that bucket of criticized classifieds?

Yes.

So we did do a very robust analysis that included looking at the latest appraised value.

I will tell you the LTVs, what's interesting about COVID, Alex, as I'm sure you can imagine, is the latest appraisal, the variation that occurs during COVID relative to values is pretty dramatic.

So when we looked at it, we actually applied a pretty significant discount to our current appraisal, and we had a handful of loans after applying that discount that we were concerned about.

And that handful of loans is sort of the loans that we've set aside some dollars for if that provides any color.

Okay.

Understood.

And then, Justin, your fee income guidance that you went through, I just missed that.

Would you mind repeating that, please?

Yes, sure.

Just to make sure I get it right, I'm going to actually look at it here.

So low single-digit growth in noninterest income, and that's excluding gain on investment securities.

Okay.

And then finally, for me, the buyback ...

Sorry, Alex, I was just going to say, the other color that we added in that paragraph was just a reminder that we waived fees this year, right, for COVID relief.

And that was offset by a really, really strong year of the interest rate swap business as well as mortgage banking.

And we are assuming that those 2 really strong performers are going to moderate a bit next year.

Understood.

And then final question for me.

The buybacks.

It sounds like you guys are using a 10b5-1 program.

Are you able to share with us what the parameters of that program are?

We're really not, Alex.

I will tell you that based on kind of the activity that we've had so far, we're looking at a payback period of less than 9 months.

And our evaluation of the parameters was based on strong economic return.

As you can imagine, you kind of have to evaluate the return of that versus the return of something else.

And a less than 9-month return is obviously a very strong return.

(Operator Instructions) The next question comes from Joe Fenech with GenOpp Capital.

Justin, I thought the margin guidance for the year was encouraging.

I apologize if I missed the detail on this, but can you give us a sense for the macro backdrop you're assuming that supports the margin outlook?

Yes, sure.

So our margin outlook is based on pretty extensive analysis that we've done trying to understand how we expect our portfolio to behave.

We do expect that we're going to continue to see some pressure on yields, loan yields.

But we also continue to think that we're still going to get some benefit out of our deposit book.

And obviously, we can see a lot more into that deposit book than perhaps is visible externally.

But we have a really strong opportunity on certain areas of our deposits.

We continue to see good CD repricing.

Our reciprocal portfolio has a lot of opportunity to come down if you think about the environment that we were in exactly this time last year, rates were high, deposits were extremely valuable, and people were taking CDs.

If they were doing a 1 year or 2-year CD at that time, it was pretty favorably priced.

So we do see some opportunity in the deposit book.

That's going to help compensate for some of the loan yields that we're expecting to compress.

We also have an interest rate cap that we talked about a while back a couple -- I think it was a couple of years ago when we initiated that interest rate cap.

And that cap is expiring, and that's going to give us some benefit as well.

The real driver of the macro view that's creating the compression that we see is really driven by the excess level of liquidity.

We anticipate that's going to continue.

You probably, in the guidance, heard what we're talking about for deposits.

We do think deposit growth is going to be more significant than loan growth next year.

And that is going to create some pressure on our NIM as we try to deploy that cash into something that looks and feels as much like a loan as we can get, which unfortunately is going to be a lower-yielding asset than a loan would be.

So I hope that's helpful.

That's the best color I think I can provide just relative to macro-environment that we see.

That's helpful.

I guess I'm just, generally speaking, though, it doesn't seem like you're assuming any kind of improvement in the rate backdrop or the shape of the yield curve or anything like we just kind of sit where we are, that's sort of the 40,000-foot assumption that you're using to be able to achieve that marketplace?

Yes, absolutely assuming a -- what I call a spot rate environment, yes.

Okay.

Great.

And then last one for me is on the provision.

Did you offer any provision guidance for the year?

Just trying to get a sense for all things being equal, and we kind of -- the outlook stays with what you guys are assuming now that the reserve build, you feel like is sufficient to kind of carry you through from here?

So it's interesting.

The challenge with -- so no, we didn't provide any specific guidance on provision.

We just stuck with charge offs.

And the reason is the same story that we've had this year is, tell me what our unemployment forecasts are going to look like and tell me what's going to happen with the pandemic, and I can probably do a little bit of a better job predicting the CECL model outcomes.

It's a really tough thing to predict.

I am very comfortable with where our ratios are right now from a coverage perspective, from a reserve perspective.

But that doesn't necessarily mean that what happens next year relative to modeled outcomes in CECL, that doesn't necessarily mean we're going to stay at that reserve level.

We could be driven to increase it, depending on what happens with economic forecast, and we could be driven to bring it down depending on what happens to those forecasts.

So it's just a really difficult thing to predict.

So we've chosen to sort of give you some guidance relative to charge-offs, but haven't really talked much about what's going to happen to the overall provision or allowance.

This concludes our question-and-answer session.

I would now like to turn the conference back over to Marty Birmingham for any closing remarks.

Thank you very much, operator.

I want to thank all those that participated in the call this morning, and we look forward to continuing to build on the conversation in the quarters to come in 2021.

This conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.